Adverse impact refers to employment practices that appear neutral but have a discriminatory effect on a protected group. Adverse impact may occur in hiring, promotion, training and development, transfer, layoff, and even performance appraisals. It may be found in an overall procedure or in any step in the overall procedure. A test or selection procedure can be an effective management tool, but no test or selection procedure should be implemented without a thorough understanding of its effectiveness and limitations for the organization, its appropriateness for a specific job, and whether it can be appropriately administered and scored.

Adverse impact is often used interchangeably with “disparate impact”—a legal term coined in a significant U.S. Supreme Court ruling on disparate or adverse impact. See, Griggs v. Duke Power Co., 401 U.S. 424, 431-2 (1971).

What Is Adverse Impact?

Adverse impact occurs when a decision, practice or policy has a disproportionately negative effect on a protected group, even though the adverse impact may be unintentional. The Equal Employment Opportunity Commission (EEOC) guidelines and the Uniform Guidelines for Employee Selection Procedures define adverse impact as “a substantially different rate of selection in hiring, promotion or other employment decision which works to the disadvantage of members of a race, sex or ethnic group.” When adverse impact exists, an organization may be vulnerable to charges of discrimination.

The agencies have adopted a rule of thumb under which they will generally consider any group’s selection rate that is less than four-fifths (4/5ths) or 80 percent of the selection rate for the group with the highest selection rate as a substantially different rate of selection. This “4/5ths” or “80 percent” rule of thumb is not intended as a legal definition, but is a practical means of keeping the attention of the enforcement agencies on serious discrepancies in rates of hiring, promotion and other selection decisions. See, Adverse Impact and Disparate Treatment: Two Types of Discrimination and What are disparate impact and disparate treatment?

Background

The Supreme Court of the United States first described the disparate impact theory in 1971, in the Griggs v. Duke Power Co., 401 U.S. 424, 431-2. Prior to the passage of the Civil Rights Act of 1964, Duke Power Co. had a policy of segregating employees according to race. Specifically, at its Dan River plant, African Americans were only allowed to work in the labor department, where the jobs were among the lowest-paying positions in the company.

After Title VII of the Civil Rights Act of 1964 was passed, the company changed its policies, adding a requirement of a high school diploma or a minimum score on an IQ test for positions in areas other than the labor department, thus eliminating a large number of African American applicants for positions outside the labor department. The Court found that under Title VII, if tests disparately impact ethnic minority groups, businesses must demonstrate that such tests are “reasonably related” to the job for which the tests are required.

Disparate Treatment

Title VII prohibits intentional discrimination based on race, color, religion, sex or national origin. It also prohibits both disparate treatment and disparate impact discrimination. For example, Title VII forbids a covered employer from testing the reading ability of African American applicants or employees when the reading ability of their white counterparts is not tested. This is called disparate treatment discrimination. Disparate treatment cases typically address the following questions:

• Were people of a different race, color, religion, sex or national origin treated differently?
• Is there any evidence of bias, such as discriminatory statements?
• What is the employer’s reason for the difference in treatment?
• Does the evidence show that the employer’s reason for the difference in treatment is untrue and that the real reason for the different treatment is race, color, religion, sex or national origin?

Disparate Impact

Title VII also prohibits employers from using neutral tests or selection procedures that have the effect of disproportionately excluding persons based on race, color, religion, sex or national origin, if the tests or selection procedures are not “job-related and consistent with business necessity.” This is called disparate impact or adverse impact discrimination. See, What is “disparate impact”?

Disparate impact cases typically address the following questions:

Does the employer use a particular employment practice that has a disparate impact on the basis of race, color, religion, sex or national origin? For example, if an employer requires that all applicants pass a physical agility test, does the test disproportionately screen out women? Determining whether a test or other selection procedure has a disparate impact on a particular group ordinarily requires a statistical analysis.

If the selection procedure has a disparate impact based on race, color, religion, sex or national origin, can the employer show that the selection procedure is job-related and consistent with business necessity? An employer can meet this standard by showing that it is necessary to the safe and efficient performance of the job. The policy or practice should therefore be associated with the skills needed to perform the job successfully. In contrast to a general measurement of applicants’ or employees’ skills, the policy or practice must evaluate an individual’s skills as related to the particular job in question. If the employer shows that the selection procedure is job-related and consistent with business necessity, then anyone who challenges the selection procedure must demonstrate that there is a less discriminatory alternative available. For example, is another test available that would be equally effective in predicting job performance but would not disproportionately exclude the protected group?

Uniform Guidelines on Employee Selection Procedures

In 1978, the Civil Service Commission, U.S. Department of Labor, Equal Employment Opportunity Commission (EEOC) and U.S. Department of Justice jointly adopted the Uniform Guidelines on Employee Selection Procedures to establish uniform standards for the use of selection procedures by employers and to address adverse impact, validation and record-keeping requirements. The Uniform Guidelines document a uniform federal position in the area of prohibiting discrimination in employment practices on the basis of race, color, religion, sex or national origin. The Uniform Guidelines outline the requirements necessary for employers to legally defend their employment decisions based upon overall selection processes and specific selection procedures.

The basic principle of the Uniform Guidelines is that a selection process that has an adverse impact on the employment opportunities of members of a race, color, religion, sex or national origin group and thus disproportionately screens them out is unlawfully discriminatory unless the process or its component procedures have been validated in accord with the Guidelines or the user otherwise justifies them in accord with federal law. This principle was adopted by the Supreme Court unanimously in Griggs v. Duke Power Co. and was ratified and endorsed by the Congress when it passed the Equal Employment Opportunity Act of 1972, which amended Title VII of the Civil Rights Act.

Though the Uniform Guidelines are not legislation or law, they are relied upon by courts as a source of technical information and are typically given significant weight by the courts. The Uniform Guidelines apply to most private employers with 15 or more employees for 20 weeks or more a calendar year and to most employment agencies, labor organizations and apprenticeship committees. They also apply to state and local governments with 15 or more employees. They apply through Executive Order 11246 to contractors and subcontractors of the federal government and to contractors and subcontractors under federally assisted construction contracts. See, Are all employers with 15 or more employees required to follow the Uniform Guidelines for Employee Selection Procedures, including adverse impact testing and applicant tracking?

The Uniform Guidelines provide standards for the proper use of employment testing, including the definition of discrimination in testing, appropriate means of validating selection procedures that may be discriminatory, acceptable methods of establishing and implementing cutoff scores (or pass points) on selection procedures, and the documentation of validity for selection procedures. The Uniform Guidelines pertain to any and all selection procedures that are used as the basis for any employment decision, including hiring, promotion, demotion, referral, retention, licensing and certification, training and transfer.

Further, the Uniform Guidelines define selection procedures to include any measure, combination of measures or procedure used as a basis for any employment decision. Selection procedures, as defined by the Uniform Guidelines, include the full range of assessment techniques, including written exams, performance tests, training programs, probationary periods, interviews, reviews of experience or education, work samples, and physical requirements.

If the use of a particular selection procedure results in adverse impact, the employer can eliminate the use of the procedure, thus eliminating the adverse impact. Or, if the employer wishes to continue to use the procedure, it must demonstrate the “business necessity” of the selection procedure– that is, a clear relationship between the selection procedure and performance of the job. This process is known as validation.

EEOC Enforcement Actions

According to the EEOC, there has been an increase in employment testing due, in part, to post-September 11 security concerns as well as concerns about workplace violence, safety and liability. In addition, the large-scale adoption of online job applications has motivated employers to seek ever more efficient ways of screening large numbers of online applicants in a non-subjective way.

The number of discrimination charges filed with the EEOC relative to employment testing and exclusions based on criminal background checks, credit reports and other selection procedures reached a high point in FY 2007 at 304 charges.

Title VII permits employment tests as long as they are not “designed, intended or used to discriminate because of race, color, religion, sex or national origin” (see, 42 USC Sec. 2000e-2(h)). Title VII also imposes restrictions on how to score tests. Employers are not permitted to 1) adjust the scores, 2) use different cutoff scores, or 3) otherwise alter the results of employment-related tests on the basis of race, color, religion, sex or national origin.

Requirement for validation and continuous test monitoring

Employers should ensure that employment tests and other selection procedures are properly validated for the positions and purposes for which they are used. The test or selection procedure must be job-related and its results appropriate for the employer’s purpose. While a testing vendor’s documentation supporting the validity of a test may be helpful evidence, the employer is still solely responsible for ensuring that its tests are valid under the Uniform Guidelines.

If a selection procedure screens out a protected group, the employer should determine whether there is an equally effective alternative selection procedure that has less adverse impact and, if so, adopt the alternative procedure. For example, if the selection procedure is a test, the employer should determine whether another test would predict job performance but not disproportionately exclude the protected group.

Best Practice Recommendations

The Center for Corporate Equality issued a 98-page Technical Advisory Committee Report on September 15, 2010, containing recommendations on best practices in how to conduct adverse impact analyses based on input from 70 of the nation’s top experts in adverse impact analyses. It has been suggested that any HR professional who performs affirmative action plans and adverse impact analyses can use the report as a “field manual.” See, Report Reviews Best Practices in Adverse Impact Analyses.

Among its numerous findings, the report concluded that the 80-percent rule is not a very good analysis “and may only be computed today because the Uniform Guidelines on Employee Selection Procedures still exist.”

Legal and policy issues

The following themes emerged from the report’s section on legal and policy issues related to adverse impact analyses:

When internal and external job seekers apply together for the same requisition, it is reasonable to analyze them together to evaluate the impact of the selection process. However, if they are not being considered simultaneously, it is reasonable to keep them as two different pools for analysis.

Although the statistical methodologies used for a disparate impact and disparate treatment or practice may be the same, the material facts of the case and the ultimate burden of proof are very different.

Actionable adverse impact is difficult to define in the abstract. Context has to be taken into account before one can feel confident that the observed differences in selection rates are actionable under the law.

Context always matters when making a decision on whether applicant data can reasonably be aggregated. Aggregating data across multiple locations may be appropriate if the selection process is standardized and applied consistently from one location to another.

A statistically significant disparity for the “total minority” aggregate without a statistical indicator for a particular protected class (e.g., black, white, Hispanic, Asian) is not legally actionable impact in most situations.

Keep in mind that anything used to make a selection decision may be considered a test and should be monitored for adverse impact. If impact is identified, the selection process should be validated in accordance with the Uniform Guidelines.

Acknowledgement— This article was prepared for SHRM Online by the SHRM Knowledge Center staff and published in Workforce Weekly 12/2010

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